When I started earning a steady income a few months into my first job, my parents and relatives were quick to advise me to save. But as a trainee journalist, I was barely making enough to cover my expenses, let alone build a savings corpus. With the high cost of rent in a new city, setting up a life from scratch, and managing utilities like electricity and water bills, saving felt like a far-off dream. Plus, when you start earning, there's a natural urge to indulge in little luxuries you couldn’t afford as a student.
But ignoring the importance of saving and investing isn’t sustainable. The question was—where should I begin?
That’s when my uncle suggested starting with an SIP (Systematic Investment Plan) and eventually transitioning to an STP (Systematic Transfer Plan). To me, these terms sounded like Greek and Latin. I realised I had absolutely no idea how or where to begin.
My uncle explained that money in hand tends to disappear quickly. Instead of letting it stagnate, he encouraged me to start an SIP and park it there. As someone completely new to the finance world, I had a barrage of questions. My uncle patiently answered some of them, but for more clarity, I turned to my chartered accountant, Abhay Asknani, who helped me understand these concepts and processes better.
That’s how my journey into saving and investing began.
What Is An SIP?
Abhay explained, ’A Systematic Investment Plan, or SIP, is a methodical way to invest in mutual funds. It allows you to invest a fixed amount at regular intervals—be it monthly, weekly, or quarterly. The minimum amount can be as little as ₹500, making it accessible to beginners. Over time, these small contributions can help build a substantial corpus.’
The key advantage of SIPs is the discipline they bring to investing. The money is automatically deducted from your bank account and invested in your chosen mutual fund. This eliminates the need to worry about market timing. Abhay added, ’An SIP also benefits from rupee cost averaging, meaning you buy more units when prices are low and fewer when prices are high, which balances out the overall cost. The power of compounding works wonders when you stay invested for the long term.’
For those looking to save on taxes, SIPs in Equity Linked Savings Schemes (ELSS) offer additional benefits. Abhay shared, ’ELSS investments through SIPs are eligible for a tax deduction of up to ₹1.5 lakh under Section 80C, making it a win-win for young investors.’
What Is An STP?
Once you’ve built some savings, you might want to consider an STP, or Systematic Transfer Plan. Abhay explained, ’An STP allows you to transfer a lump sum from one mutual fund, typically a debt fund, to another, like an equity fund, in a systematic way. For instance, if you’ve parked a large amount in a liquid fund, you can use an STP to gradually move portions of it into an equity fund.’
This approach is particularly helpful for those wary of investing a lump sum in volatile equity markets. ’By transferring money over time, you reduce risk and still make a small profit on the lump sum sitting in the debt fund,’ said Abhay.
SIP vs STP: Which One Should You Choose?
The choice between SIP and STP largely depends on your financial situation and goals.
- Type of Investor:
- SIPs are perfect for those who are starting out prefer to invest smaller amounts regularly.
- STPs work better for investors with a substantial lump sum, looking to mitigate market volatility.
- Tax Implications:
- SIPs in equity funds are tax-efficient, particularly ELSS funds.
- STPs attract capital gains tax with each transfer from the liquid fund. Abhay noted, ’While SIPs allow for a straightforward tax-saving route, STPs require careful planning to manage tax liabilities.’
- Purpose:
- SIPs are ideal for those with a long-term investment horizon aiming to grow their wealth gradually.
- STPs are suited for cautious investors seeking to move funds systematically from low-risk to high-risk investments.
Where To Begin:
Abhay offered a simple starting point for beginners: ’If you’re new to investing and have no lump sum, begin with SIPs. It’s affordable, low-risk, and an excellent way to build discipline. If you have idle funds, consider STPs to optimise returns and reduce risk.’
Ultimately, the choice between SIP and STP should align with your financial goals. It’s important to assess your risk tolerance, tax considerations, and investment timeline before deciding. As Abhay wisely said, ’A planned approach to investing not only helps grow your wealth but also ensures financial security in the long run.’
By seeking the right advice and taking small, consistent steps, I’ve learned that investing isn’t as daunting as it seems. Whether through SIPs or STPs, the key is to start somewhere.